A very popular discussion topic recently among business and tech people alike is the acquisition of Digitel by PLDT. Through the acquisition, Digitel and parent company JG Summit Holdings are basically turning over to PLDT the control of its mobile network subsidiary Sun Cellular.
The question in the minds of current Sun subscribers: what will happen to us? A lot are fearing that Sun’s popular “unlimited” plans will soon come to an end now that PLDT will be running the company.
That fear is valid.
For several years now, Sun’s cheap mobile offerings have severely undercut the pricing and, hence, margins of telco players Smart (owned by PLDT) and Globe (owned by Ayala Corp.). As a result, the two big players struggled to make a profit. Smart and Globe tried to differentiate by offering premium, value-added services such as mobile internet, push email and mobile chat — but these have still not caught on as majority of Filipino cellphone users prefer the traditional texts and calls.
Sun has nothing new to offer PLDT
We believe PLDT will ultimately kill the Sun Cellular brand. Why? To understand this, we need to go back to the fundamental reasons why a company acquires another company.
The primary goal when making acquisitions is to leverage the acquired company’s strength and capabilities or to reach a new market. We don’t see these in Sun Cellular’s case.
Sun does not really have much competitiveness in the telecoms industry. It has remained a far third in the telecoms war in the country, with a subscriber base merely 1/3 of Smart’s 46 million users. For several years, it barely made a dent in the telecoms industry, that is, until the offering of unlimited plans which made people choose Sun as their No. 2 cellphone line. For most Sun subscribers, Sun became the alternative to their primary Smart or Globe line, taking advantage of the unli-plans that Smart and Globe have since copied.
But then again, offering unlimited plans is something Smart would not want to continue. Even Globe thinks the acquisition signals a shift to higher margins, as seen in an internal memo issued to employees yesterday parts of which were published on Inquirer.net:
“PLDT is seen to carry the cost of bringing rationality back to the market by paying for this acquisition and that Globe is seen to benefit from it as profitability remains in a more stable and consolidated market.
We might find ourselves competing in a more rational marketplace with better margins as the new opposition could decide to scale back on the unlimited propositions that undermine industry.”
Globe confirms a shift back to premium pricing and higher margins and “[scaling] back on the unlimited propositions that undermine the industry” is what PLDT wants to achieve with the acquisition.
Another reason a company might acquire another company is to obtain access to specific markets. But then again, Smart’s Red Mobile and Talk n’ Txt brands are basically targeting the same markets of Sun. Thus, we believe, Sun does not really give PLDT anything new.
Coke killed Pop Cola when it acquired the brand
So why acquire Sun? Well, to kill the competition. PLDT will perhaps merge Sun with Red Mobile or Talk n’ Txt and effectively remove the low-cost player in the competition.
Remember Coca-Cola’s acquisition of Pop Cola a few years ago. As the No. 2 player in the Philippine cola market (Pepsi was No.3 then), Pop Cola threatened Coke’s domination. Coca-Cola then decided to acquire Pop Cola from RFM and, a few years later, killed the Pop Cola brand. Proof? If you’re in Metro Manila, you’ll rarely see Pop Cola in stores anymore. Coke’s goal in acquiring Pop Cola was not to gain any competitive edge, it just wanted to kill a powerful competitor in the market.
The Sun will set — perhaps in 2-3 years
Of course, PLDT’s management has recently been on the news proclaiming Sun will keep on offering unlimited plans. We believe them — at least for the short-term. Consumers will surely rage against the phasing-out of unlimited plans, which is why PLDT will have no choice but to continue offering these.
We’re pretty sure, though, that Smart will add a new dimension to this offering, perhaps by bundling premium services to the unli-plans or by using unli-plans to force users to shift to the more lucrative post-paid subscriptions.
Along the way, the Sun brand will gradually be phased out perhaps to be merged with either Red Mobile or Talk n’ Txt — in a move the company will tout as “consolidation” or “rationalization.”
It might not happen this year, but wait 2 or 3 years before the Sun will set.
